Hargreaves Lansdown has called on the Government to announce a review on pension taxation in the forthcoming Budget on 11 March.

The financial services company announced that it has proposed a new ‘double your money’ alternative to the current tax relief system.

The group highlighted the Government’s commitment to finding solutions to the problems of the tapered annual allowance, as well as the net pay pension administration system affecting non-taxpayers.

Hargreaves Lansdown suggested the taper is hitting higher earning public sector workers with punitive tax bills, and that the net pay system means some employees earning below the income tax threshold get no tax relief on their pension contributions.

Hargreaves Lansdown also highlighted other problems with the pension system – including the value of the government tax relief being poorly understood by most pension savers, incentives to save not being well targeted, good investment returns being penalised, and valued employees such as doctors being penalised for taking on extra work.

Senior analyst at Hargreaves Lansdown, Nathan Long, called the UK’s pension tax relief system a ‘bloated expensive mess’ that is ‘riddled with problems and inconsistencies.’

“Any attempt to fix the taper and net pay problems in isolation is likely to make the situation worse as it heaps in further complexity,” Long said.

“We urge the Government to take advantage of this window of opportunity, to improve people’s retirement prospects, get better value for money for the taxpayer and reframe any Government spending as an incentive not a subsidy.

“Most people don’t even understand how tax relief works, yet the government spends over £50bn a year on it. For many people, it’s just not working, this includes the self-employed, high earners, low earners, non-earners such as women taking a career break, and those who have retired and then gone back to work.

“The big winners from the current system are people on above average incomes, provided they don’t earn too much, and public sector workers in final salary schemes. This just doesn’t stack up as a fair deal across society anymore.”

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